ISME claims income levy will add pressure to wage demands

SMALL businesses will come under further pressure because the budget has done little for the promotion of enterprise.

ISME, the representative body for small and medium firms, said measures announced in the budget will not reposition the economy for growth.

The association said the 1% income levy will put further pressure on wage demands and will negatively impact on productivity.

“Further wage demands will be requested by employees as a consequence of the introduction of the car parking levy. These levies are a direct tax on labour, which will contribute to increasing the level of redundancies, which are already rising to record levels,” ISME chief executive Mark Fielding said.

Employers’ group IBEC said it supports the moves to stabilise finances but said it would have preferred a greater emphasis on cutting expenditure rather than on increasing taxation.

IBEC director general Turlough O’Sullivan: “It is important that this budget helps position Ireland to trade successfully, especially after the global economic recovery comes.”

Mr Lenihan also confirmed yesterday that Ireland’s 12.5% corporation tax rate is not under threat.

Eoghan Quigley, tax partner with KPMG, said these comments will soothe the worries of external investors. “Overall, the business tax measures such as the increase in the rate of R&D tax credits and the three-year tax exemption for start-up companies is favourable to the internationally focused businesses.

“However, this is a budget that was dominated by income tax and VAT changes, and from a pure business tax perspective, it was largely uneventful.”

The minister also announced that the top rate of stamp duty on commercial property will be cut to 6% from 9% to stimulate investment, and the Government will finance the cut by increasing the capital gains tax rate.

He also said he plans to conduct a review of the National Pension Reserve Fund before the end of the year.

Ireland contributes 1% of GDP to the fund every year to meet future pension needs.

Bloxham chief economist, Alan McQuaid said: “It’s a very contractionary budget; I think their spending cuts aren’t as big as they hoped and tax is taking the brunt. They could have probably put some kind of limit on the income levy.”

IIB chief economist Austin Hughes said the budget was not a radical one.

“Its forefathers are more like the tough budgets of the 1980s so I am not sure how much imagination has been shown here.

“The one positive thing is maintaining the low rate of corporation tax.

“It would also be nice to see a few more signposts as to where the budget is going over the following couple of years. I think revenue raising is going to become an issue for most economies given the current downturn, the question is how it is going to be done. The worry here is the resulting increases in the cost of living for households.”